An amount of Rs. 10,000 becomes Rs. 12,100 in 2 years with annual compounding. What is the annual compound interest rate?
Correct answer: C. 10%
- A. 8%
- B. 9%
- C. 10%
- D. 11%
Explanation
The growth factor over two years is 12,100/10,000 = 1.21. Since 1.21 is equal to 1.10 squared, the annual compound rate is 10%. Dividing the total growth of 21% by two would not correctly account for compounding.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
About Financial Mathematics: Interest, Annuities and Discounting
Financial mathematics covers simple and compound interest, principal, rate, time, accumulated value and present value. It also includes annuities, regular payments, sinking funds, loan repayments and discounting, with a distinction between ordinary annuities and annuities due and between trade discount and mathematical discount.
Practise Financial Mathematics: Interest, Annuities and Discounting
30 free Financial Mathematics: Interest, Annuities and Discounting MCQs from Quantitative Methods, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Quantitative Methods questions like this
Quantitative Methods is on this paper prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for it.
More Financial Mathematics: Interest, Annuities and Discounting questions
An investment pays Rs. 1,000, Rs. 1,200 and Rs. 1,400 at the ends of years 1, 2 and 3 respectively. At 10% interest, what is its present value?
An investment costs Rs. 10,000 today and returns Rs. 6,000 at the end of each of the next two years. At a discount rate of 10%, what is its net present value?
What annual effective discount rate is equivalent to an annual effective interest rate of 10%?
A bond with a face value of Rs. 1,000 pays an annual coupon of 8% and matures after 2 years. If the required yield is 10%, what is its price?
A loan of Rs. 50,000 carries annual interest of 10% and requires an annual payment of Rs. 20,000. What is the outstanding balance immediately after the first payment?